Concerns over minimum pension, transfer window delay

The pension industry has undergone rapid transformation in slightly over a decade largely due to reforms that saw Nigeria offsetting billions of unpaid pension liabilities and accumulating N7.52 trillion under the contributory pension scheme (CPS) as at the end of December, 2017.

The National Pension Commission (PenCom), currently headed in acting capacity by Aisha Dahir-Umar, had over the years regulated the contributory pension scheme, growing membership to slightly less than eight million members.

Despite these achievements in the nation’s pension industry, there are key policy issues affecting pension and retirement in the country that are still in limbo.

One of such policy issues is the transfer window yet to be authorised by PenCom in the contributory pension scheme in the country.

The Pension Reform Act, 2014 provides that an employee may, not more than once in a year, transfer the Retirement Savings Account (RSA) from one Pension Fund Administrator (PFA) to another without producing any reason for such transfer.

Section 13 of the Pension Reform Act 2014 also provides that, “subject to guidelines issued by the commission, a holder of a retirement savings account maintained under this Act may not, more than once in a year, transfer his account from one Pension Fund Administrator to another.”

Despite this provision, PenCom is yet to authorise PFAs to allow RSA holders to transfer their RSAs from one PFA to another.

The implication is that RSA holders whose PFAs are underperforming in terms of investment of their savings are stucked with such PFAs as they cannot move their funds to PFAs with better history of high returns on investment.

When contacted, a source within PenCom explained that the Commission is being meticulous on the transfer window to ensure that contributors are not affected.

The source said the Commission is cleaning up the database of RSA holders to ensure that issues such as duplications and misinformation are fixed to pave the way for RSA transfers.

Secondly, minimum pension guarantee is also in limbo as PenCom is yet to clearly define what retirees can earn as minimum pension just as there is minimum wage in the country.

Section 71 of the Pension Reform Act 2004 (now amended 2014) provided for the establishment of a minimum pension guarantee for all workers who have contributed for some years but have not accumulated enough to have a minimum pension at retirement.

Section 71 of the Pension Reform Act 2004 (now amended 2014) provided for the establishment of a minimum pension guarantee for all workers who have contributed for some years but have not accumulated enough to have a minimum pension at retirement.

For the smooth operation of the minimum pension guarantee, Section 82 subsection 1 of the Pension Reform Act 2014 provided for the establishment of pension protection fund to provide minimum pension guarantee for contributors who have insufficient funds in their retirement savings account as at retirement.

The Act requires the federal government to fund the pension protection fund from an annual subvention of one per cent of the total monthly wage bill payable to employees in the public service of the federation and returns from pension fund investments.

The Fund is also expected to be funded from the annual pension protection levy paid by the National Pension Commission (PenCom) and all licensed pension operators at a rate to be determined by the commission from time to time.

However, findings show that there is no defined minimum pension guaranteed at the moment under the CPS.

On minimum pension guarantee, the source said PenCom has been working on it.

Thirdly, accrued right, which is duly backed by law, is another issue affecting the contributory pension scheme negatively.

The pension Act requires that government should pay the accrued rights of workers who transited to the contributory pension scheme in addition to the savings in their RSAs.

To ensure that government pays the accrued rights, PenCom came up with a policy that workers entitled to accrued rights cannot access their RSAs until government pays their accrued rights into such RSAs and this policy has left many retirees without benefits months after retirement.

The last time the government paid accrued rights was in December, 2016, a development that has left retirees who left active service in 2017 unable to access their benefits.

There have been calls for PenCom to review its policy and allow retirees access to their RSAs as they await their usually delayed accrued rights.

The source said the problem is not with PenCom but on the government and that PenCom has been consistently nudging the government to release funds to settle the backlog.

The source revealed that PenCom’s effort led to the recent release of the accrued right of those who retired in January and February 2017.

The source further said it was not possible to allow retirees access RSAs as the accrued right is usually higher than the contributions accumulated in the RSAs.

Micro-pension scheme and access to contributory healthcare are also two issues that are in limbo in the nation’s pension industry.

For a while now, PenCom has been on the verge of rolling out Micro Pension Plan (MPP) to guarantee financial security for informal sector players as well as boost Nigeria’s pension assets to over N20 trillion by 2020.

The pension Act expanded coverage of the CPS to the self-employed and persons working in organisations with less than three employees.

However, the rollout remains in limbo just as retirees are taken off the National Healthcare Insurance Scheme (NHIS) at the point of retirement when they need healthcare the most in their lives.

The source in PenCom explained that the Commission is still trying to come up with a guideline to regulate micro pension as it affects people in the informal sector.

The source said the informal sector is largely unstructured and unregulated unlike the formal sector of the economy and it is on the basis of this that PenCom is being careful in putting together the guidelines.